Healthcare cuts a sign of painful budget

The federal government will slash its pathology bill by $550 million over five years amid warnings a $4.5 billion plunge in tax revenue will force tough cutbacks across a wide range of spending programs.

The new agreement reached with the pathology sector will cap annual growth in spending to 5 per cent a year and is roughly in line with industry expectations.

Government spending on pathology through Medicare had increased by 6.3 per cent annually on average in the past 10 years but the growth rate dipped to 2.1 per cent in 2009-10 when pathology funding was just over $2 billion.

The slowdown is not expected to persist, however, and after a month of negotiations, the industry agreed to the 5 per cent cap in return for business certainty and some process changes. The Medical Services Advisory Committee will now assess the cost effectiveness of new tests and pathology results will be integrated into health records.

The agreement is the latest attempt by Health Minister
Nicola Roxon
to keep a lid on recurring costs in the big- spending health portfolio and follows a $1.9 billion savings agreement struck with the pharmaceutical industry last year.

It comes amid speculation the government is preparing to slash spending on medical research and raise the co-payment on prescriptions in the budget. It follows the release of figures by Treasurer
Wayne Swan
showing that tax collections in the first eight months of the financial year were $4.5 billion lower than had been forecast in the Mid-Year Economic and Fiscal Outlook.

Mr Swan said business tax revenue was down about $3 billion and personal income tax collections were about $1 billion lower. This was mainly due to softer capital gains because the sharemarket was yet to return to pre-global financial crisis levels, the lingering effects on activity of January’s natural disasters, subdued consumer spending and the strong dollar.

The release of the figures is the latest instalment in a campaign by the government to brace the electorate for an austere budget, the first to be delivered with Julia Gillard as Prime Minister, replete with unpopular spending cuts.

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Finance Minister
Penny Wong
warned on the ABC’s Insiders program yesterday that the revenue shortfall would make “what was a tough budget even more difficult".

“It’s going to be a tough budget. It won’t necessarily be a popular budget," she said. “It needs to be a tough budget in the short term given what’s happening to revenue because of the softness in the economy."

Mr Swan reaffirmed the government’s commitment to return the budget to surplus in 2012-13 despite the slump in the federal tax take.

“Losing big slabs of revenue like this of course makes it even tougher to get back to surplus as planned, but we’re determined to make the difficult decisions to meet that commitment," he said.

Senator Wong defended the surplus target, arguing it was vital to ensure the government was no longer adding to demand in the economy once the huge pipeline of resource-related investment got into full swing.

“As we get that investment, we know that the private sector are going to employ more people, spend more money, use more resources," she said. “You don’t want government chasing the same scarce resources. That’s why we have to come back to surplus."

But Opposition Leader Tony Abbott said the shortfall in revenue claimed by the government was “just an excuse" and the only reason the budget would be tough was due to wasteful spending.

“The reason why this is a budget that will inflict pain on the Australian public is because this is a government which has wasted money hand over fist," Mr Abbott said, adding that while the revenue shortfall would hit the budget bottom line this financial year, “it doesn’t impact on the next financial year, so that’s just an excuse".